Mortgage Lending - Property Buyers and Owners must make the most of low rates

In the face of higher inflation and rising home prices, the Monetary Policy Committee’s decision to leave the repo rate unchanged at 5,75% is good news for both homebuyers and existing homeowners.

The decision announced by Bank Governor Lesetja Kganyago means that the prime rate and variable home loan rate will also stay the same, at 9,25%, which is especially important for prospective homebuyers, because lower rates make it easier to qualify for home loans and to afford monthly bond instalments, says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.

Similarly, stable rates will make it easier for existing homeowners to keep up with their home loan repayments over the next few months in the face of rising costs such as the impending electricity tariff increases, he says.

“However, we do not expect that this type of good news will keep coming for much longer. The Governor noted that the members of the MPC were divided in their opinion as to whether to raise rates at this stage or not, and emphasised that there were several upside risks to inflation that would probably necessitate a rate rise before long.

“These include an above-inflation rate of wages increase over the past year and more increases coming in the public sector and the mining industry; the low rand exchange rate; the fact that oil prices have started to rise again; the fact that food prices are expected to increase due to drought conditions that have necessitated the import of maize; and, of course, the utility tariff increases that are due to be implemented by most municipalities over the next few months.”

Consequently, Rademeyer says, it is widely expected that the MPC will soon decide to raise rates to ensure that the inflation rate remains within its 3 to 6% target range, even though economic growth is extremely sluggish and household consumption expenditure and credit extension are at very low levels.

“In fact, the change could come as soon as July, which is when the MPC is due to hold its next meeting, although some commentators believe that the Reserve Bank could hold on until the US Federal Reserve starts to raise rates – a move, which at this stage, it is expected to make in September.”

Either way, he says, since an interest rate increase of even half a percentage point can make a major difference to the affordability of housing, those with plans to buy a new home should do so as soon as possible, and with as big a deposit as possible.

“This will not only improve their chances of obtaining a home loan but will also lower their monthly repayments and enable them to cope more easily if and when rates do start to rise.”

As for existing homeowners, Rademeyer says, they should be taking the opportunity now to pay an additional amount into their bond account every month and reduce the capital portion of the loan.

“This will not only put them in a better position to deal with future interest rate increases, but also enable them to pay their whole loan off much quicker and save many thousands of rands in interest.”

Courtesy: Better Life Home Loans

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